Court held creditor must pay debtor for creditors wrongful repossession.

In this case, the debtor pledged his vehicle as collateral on a loan and the loan was in default due to late payments.

The creditor, Mercedes-Benz Credit Corp., repossessed debtor’s vehicle, however, the court found the repossession constituted a wrongful repossession, or “conversion.” The court ordered Credit Corp. to pay $11,900 damages to debtor.

Here, during the first 14 months that debtor made payments to Credit Corp., debtor was late with his payments 13 times. Although Credit Corp. accepted the 13 late payments, it decided to repossess the vehicle when debtor was again in default.

The standard security agreement and note which creditor provided stated, in part:

Acceptance of a late payment or late charge does not excuse your late payment or mean that you can keep making payments after they are due. The creditor can also take the steps set forth below if there is any late payment.

The following provisions concerned default and the creditor’s right to repossess the collateral in the event of default.

Notwithstanding the specific contract terms above, the court found that by virtue of the creditor accepting 13 late payments, the creditor had established a course of dealing with the debtor, which would require creditor to notify the debtor that no further late payments would be accepted.

The court concluded that continuous acceptance of late payments could be considered a waiver of the actual contract terms. Mercedes-Benz Credit Corp. v. Morgan, Arkansas Supreme Court, No. 92-982.

Author: Charles R. Harroun, Attorney at Law